Why Gusto’s contractor payments failed for international IBANs and the remittance fix that prevented missing payouts

Gusto has long been a popular payroll solution for small and medium-sized businesses in the U.S., offering features like automated tax filings, easy direct deposits, and contractor payments. However, in recent months, users encountered a troubling pattern: international contractor payments made using IBANs were frequently failing. This issue not only delayed payments but also caused confusion, frustration, and in some cases, loss of trust among global contractors. Thankfully, Gusto implemented a critical update to its remittance process that resolved the issue and improved international payment reliability.

TL;DR:

• Gusto’s contractor payments failed for international IBANs due to incorrect formatting and missing remittance information required by foreign banks.
• The platform relied on domestic banking norms, causing compatibility issues when handling international payouts through SWIFT or SEPA networks.
• The fix involved implementing updated remittance data and validation tools for IBAN entry, significantly improving the success rate of transfers.
• Contractors and employers now experience more reliable payments with fewer delays or rejections.

Understanding the Issue with IBAN Failures

International payments follow a completely different set of rules than domestic US-based banking transactions. When Gusto attempted to expand contractor support to users located outside the U.S., it relied on the International Bank Account Number (IBAN) standard for routing transfers. At first glance, this seemed straightforward. However, behind the scenes, many banks require additional details—such as the Bank Identifier Code (BIC or SWIFT code), local purpose codes, and regulatory remittance fields—to process transactions correctly.

The problem surfaced when international payouts began failing or bouncing back. These issues were reported predominantly in countries with stringent compliance requirements like Germany, India, and Brazil. In some cases, banks rejected the transfers outright because required fields were blank or formatted incorrectly. In others, payments were accepted but then reversed days later, causing further disruption.

Why the IBAN Format Isn’t Always Enough

Gusto collected basic information from users sending international payments: the contractor’s name, IBAN, and occasionally the country. However, some banks—including those participating in the SEPA system in Europe or the SWIFT network globally—require additional metadata to trace the source and purpose of funds. For example:

• France and Germany: Require remittance information indicating the service provided.
• India: Often needs purpose codes matching trade registrar categories.
• Brazil: Banks require tax identifiers and pre-shared reasons for fund import.

Without proper handling of these details, the international financial system flags the transaction as non-compliant, which results in the bank rejecting or holding the payment. Since Gusto’s system was initially designed with primarily U.S. banking protocols in mind, these complexities weren’t accounted for in the earlier contractor payment modules.

The Consequences for Contractors and Employers

Beyond the hassle of failed transactions, the consequences for both the contractors and the employers were significant. Contractors relying on Gusto payments for recurring income were often left waiting days—or even weeks—for resolution. For employers, this meant extra time spent contacting support, reissuing payments, and explaining delays to contractors.

In several cases, repeated failures led to contractors opting out of working with U.S. companies that depended on payment via Gusto, negatively affecting hiring and retention strategies. This was particularly damaging for tech companies, digital marketing agencies, and content firms leveraging international freelance talent.

Investigating the Root Cause

Gusto’s internal review revealed that the majority of the failed international payments stemmed from:

1. Missing or improperly specified SWIFT/BIC Codes.
2. No remittance instructions or local tax identifiers.
3. Automated validation tools that incorrectly accepted incomplete or invalid IBAN formats.
4. A lack of compliance integration with specific foreign currency control regulations.

These gaps accumulated into a systemic mismatch between what Gusto was sending and what foreign financial institutions expected to process. The fix would have to be multi-layered, addressing both technology and workflow.

Implementing the Remittance Fix

In early 2024, Gusto launched a strategic update to its contractor payment platform, targeting exactly these pain points. The fixes included:

• Enhanced Field Validation: A new IBAN validation engine was introduced to detect incorrect characters, length mismatches, and unsupported country formats at the time of entry.
• Mandatory SWIFT Code Inputs: Contractors are now prompted to input both their SWIFT code and local banking identifier if applicable.
• Remittance Data Fields: Additional fields were made available for users to enter the purpose of payment, tax nationality, and other jurisdiction-specific details.
• Localized Compliance Checks: Payments to high-regulation countries now route through an approval layer that double-checks currency restrictions, OFAC compliance, and account verifications.

The Results: Stability and Confidence Restored

Since the updates, Gusto has reported a dramatic reduction in failed international transactions. In fact, by mid-Q2 2024, the company saw a 90% decrease in payment exceptions reported by contractors using IBAN transfers internationally.

Contractors now receive their funds within 1 to 3 business days, depending on location, bringing Gusto back in line with industry standards for international transfers. Moreover, fewer support tickets related to payment confusion mean streamlined operations for businesses and greater contractor satisfaction.

What Employers and Contractors Should Do Now

To make the most of the improvements, both parties using Gusto for international payments should follow best practices:

• Ensure all required fields are complete: Always double-check with the contractor’s bank what’s required beyond the IBAN.
• Use the SWIFT code every time: It might seem optional, but in many jurisdictions it’s critical to processing payments without rejection.
• Add remittance instructions: Clarify the nature of the payment to prevent unnecessary compliance holds.
• Keep banking data up to date: Regularly verify that contractors haven’t changed banks or details.

With these enhancements and proactive practices, businesses can now use Gusto with renewed confidence when paying their global workforce.

Frequently Asked Questions (FAQs)

Why were Gusto international payments failing previously?

Many payments were rejected due to missing remittance data, unsupported IBAN formats, and missing SWIFT codes, which were essential for certain jurisdictions.

Has Gusto fixed the payment issue permanently?

Yes, Gusto introduced multiple layers of validation and enhanced remittance handling, resolving the majority of known issues with international IBAN-based payments.

Do all international contractors need a SWIFT code now?

Yes. Gusto now requires that employers include the contractor’s SWIFT/BIC code to ensure seamless processing through global banking networks.

Is it safe to resume using Gusto for paying international contractors?

Absolutely. With the implemented fixes, Gusto is now much more reliable for international contractor payouts than it was during the period of frequent failures.

What other information do I need to collect for international payments?

In addition to IBAN and SWIFT code, bank address, purpose of payment, and sometimes a national tax or identity number may also be required, depending on the country.